I had a client who already has a handful of business entities call me today and say that they were starting up two more minor businesses. They were wondering how to keep track of the expenses related to these new businesses. Specifically they wanted to know if they should create two new QuickBooks files, or if they were too small to warrant their own separate files.
I could not stress enough to the client that every separate business, no matter how small, needs to have its records kept separate from anything else. If something is so small you don’t want to create a company file in QuickBooks, at least keep track of your income and expenses related to that business in a spreadsheet. However I usually suggest just using QuickBooks, or whatever accounting software the client is using, to keep track of the records no matter what just for ease of use and consistency.
I even go as far as telling them to make sure they open bank accounts for the business activities regardless of size. Small checking accounts are almost always free of fees so it will cost a business owner nothing to open an account and maintain it. A separate account allows for easier record keeping and reconciling.
There are times where one of these seemingly small ventures turns into something bigger and does so quickly. If it does, you want to have a good record keeping process from the start so you may accommodate more activity without stressing over how to keep track of all of the new business.
There is also the matter of year-end taxes. If you are doing your own taxes, good records could mean the difference between a fairly painless experience and a stressed out scramble for information leading all the way to deadline day. If you have a CPA prepare your taxes, it could save you hundreds of dollars in preparation fees to have tidy and complete records.
So take a look at how you keep your accounting records and remember this; The business owner who goes to their accountant on April 14 pulling their hair out with one hand and a box full of receipts in the other pays a lot more in fees than the business owner that showed up a month earlier with a QuickBooks file on a flash drive.